Activision settles lawsuit with former Infinity Ward heads West and Zampella

Former Infinity Ward heads Jason West and Vince Zampella have settled their lawsuit with video game publisher Activision Blizzard.

In a brief statement, Activision Blizzard says the terms of the settlement are “strictly confidential.”

The company does not believe that the incremental one-time charges related to the settlement will result in a material impact on its GAAP or non-GAAP earnings per share outlook for the current quarter or the calendar year, due to stronger-than-expected operating performance in the current quarter.

The battle between Activision and West and Zampella began in 2010 after the pair’s dismissal from Infinity Ward. Zampella and West said Activision owed them royalties, and Activision accused them of planning to defect to a new studio funded by its arch enemy, Electronic Arts. The founders fired off a lawsuit saying Activision conspired to get rid of them.

The legal action spiraled into a bigger battle for control of the first-person shooter market, which has turned into a multibillion-dollar business. Activision sued EA for interrupting its business by stealing away Zampella and West, who set up Respawn Entertainment and hired dozens of former Infinity Ward employees. Activsion recently claimed more than $1 billion in damages.

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Activision said that it had to pull another studio, Sledgehammer Games, off of its own Call of Duty game to help the decimated Infinity Ward studio finish Call of Duty: Modern Warfare 3. That game generated more than a billion dollars in revenue for Activision, but the company said it could have made more profits and also completed another game in the Call of Duty family. EA could have been stuck holding the bag for a very large legal bill.

But EA and Activision settled the lawsuit recently. In a joint statement, the companies said about that settlement: “Activision and EA have agreed to put this matter behind them.” They declined to disclose the details of the settlement, but Wedbush Securities analyst Michael Pachter said that no money changed hands. EA said it would not have to file an 8K financial disclosure related to the settlement, and EA never set aside a fund to insure against legal losses related to the case.

On top of that, Activision voluntarily agreed to pay $42 million in royalties that it owed to Infinity Ward employees — not including West and Zampella.

Even more stunning were court disclosures about Project Icebreaker. Activision executives’ email records showed that they had allegedly conspired to find dirt on West and Zampella because the Activision management was fed up with their arrogance and wanted a pretext to fire them. This project preceded the time when the founders began communicating with EA and Hollywood agent Seamus Blackley, who helped get the Infinity Ward co-founders and EA together.

In other words, Activision was trying to get rid of the duo that it said were critical to the success of its Call of Duty business. In the legal filings, former chief legal officer George Rose at Activision asked Thomas Fenady, former director of information technology at Activision, to “dig up dirt on Jason and Vince” because “we just want to get rid of them.” Rose allegedly told Fenady that Activision Blizzard chief executive Bobby Kotick had given the orders. Rose also told Fenady not to get caught and said that “Bobby will take care of you” if things didn’t turn out well. Rose denied this in his deposition. Fenady reportedly tried to get access to West and Zampella’s hard drives and email records. Activision declined comment on that.